Property development activities often occur in stages, which are appropriately modeled as sequential American exchange property options, where there are interim expenditures required in order to keep the property development options “alive”. Normally American exchange options require a...

Os modelos de estabelecimento de preços para opções pressupõem que estas podem ser replicadas através de processos de cobertura dinâmica (dynamic hedging) no activo subjacente. Habitualmente o hedger assume uma posição longa no activo subjacente em quantidade igual ao delta de uma...

The optimal replacement policy for an asset subject to a stochastic deteriorating operating cost is determined for three different tax depreciation schedules and a known re-investment cost, as the solution to a two-factor model using a quasi-analytical method. We find that tax depreciation...

We develop real rainbow option models to value an operating asset with the flexibility to choose between two commodity outputs. We provide a quasi-analytical solution and a numerical lattice solution to a model with continuous switching opportunities between two commodity outputs, taking into...

This article evaluates Tourinho's (1979b) work as one of the earliest contributors to the real options literature. His model pioneered the application of risk neutrality to uncertain investments, but his originality of introducing an option-holding cost albeit to overcome the extraction paradox...

We study optimal replacement and abandonment decisions for real assets, when both revenues and costs are uncertain and deteriorate with age. We develop an implicit representation of the renewal boundary as the solution to a set of simultaneous equations. This quasi-analytical method has the...

By mixing concepts from both game theoretic analysis and real options theory, an investment decision in a competitive market can be seen as a “game” between firms, as firms implicitly take into account other firms’ reactions to their own investment actions. We review two decades of real...

Recent evidence suggests that future performance is predictable from past performance, that is, funds with superior (inferior) performance in the past are likely to remain good (bad) performers in the future. This research addresses the persistence of mutual fund performance in a European...

We provide an alternative analytic approximation for the value of an American option using a confined exponential distribution with tight upper bounds. This is an extension of the Geske and Johnson compound option approach and the Ho et al. exponential extrapolation method. Use of a perpetual...